Not that talk! I am referring to the kitchen table talk about going to college and how much family resources will be available.

It is important for you and your child to be on the same page financially. Ideally, there will be multiple talks starting early in your child’s high school career or even late in their junior high years.

The talk goes something like this:

“Honey, we want to do everything we can to put you on the best possible path for life. That will be involve going to college and we want to make that happen for you.”

“As you know some colleges are very expensive. Just so you know, we saved enough to pay $X per year which will cover the expenses of approximately y% of the cost of an instate college. To make this work, you will be responsible for the rest through scholarships, your savings or student loans”.

“It is important that you do everything you can to become an attractive scholarship candidate to colleges by achieving your very best in school and sports. In many cases, you will have to apply for scholarships and they are often awarded on a first come, first serve basis. Therefore, you need to be diligent and timely.”

“Again, we are on this journey together. We want to help you make your dreams come true. We would love it if you graduated with little or no student loan debt. Please keep the communication lines open with us. We can do this!”

A talk like this goes a long way to extablishing expections and making clear to your child that they have “skin in the game” (i.e., their action or inaction will directly determine the amount of student loan debt they will have upon graduation). Talks like this will also properly incentivized your child.

In terms of student loans, please be aware that the Stafford Loan (i.e., loans that the student is totally responsible) limit is “only” $31,000 (aggregate). This covers the cost of only one year’s attendance at many colleges. Then “parent loans” (i.e., PLUS Loans) are required. (Note: a $57,000 Stafford Loan limit is available if the parent does not qualify for PLUS loans due to substandard credit scores – see http://www.finaid.org/loans/studentloan.phtml).

As a parent, what should you do now? You need to uphold your end of the bargain. You need to develop an optimized college investment plan from the thousands of available of investment options from 529 Plans, Education Savings Plans (Coverdell Plans), etc. Incorporating an optimized financial aid plan is a critical component of the process.

If you need professional, independent advice, try www.401kid.com which parents and financial advisors like you use to obtain optimized, unbiased investment and financial aid advice.

Please let us know what you would like to see from 401kid!

Making your education dreams come true,
Bob Lally
401kid, Inc. COO
(father of a current college student + a recent college graduate)

401kid, Inc. provides unbiased, college financial planning advice via www.401kid.com where families and advisors can optimally fund education dreams with superior a) conflict free asset allocation and financial aid advice; b) a comprehensive ’supermarket’ of education savings investment options; c) savings discipline opportunities for building client wealth; and d) value added content with social networking.

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Times are tight. How are we Americans to deal with the recent loss of savings and rising cost of living, on top of the already-challenging demands of every day life? Whatever, your situation, being organized and intelligent about your personal family finances is essential. Are you currently using Quicken or Microsoft Money to do so? How often do you balance your checkbook? If you are using software tools consistently, excellent – that means you are committed to organizing your finances. I have something even better for you though. I recently signed up with Mint.com, a free web-based money management tool. There are a few other similar programs, including Wesabe, Geezeo, and Dimetracker.com, which I haven’t used, so I cannot speak for them. After 16 weeks of use, I am a huge fan of Mint, and here is why.

1. Ease of Use: Within 10 minutes, I setup my Mint account, and added several bank, loan and investment accounts, including a business expense account. I’ve written another entry in the Blueliner Marketing blog about how Mint.com defines the best of web 2.0.

2. Intelligent Categorization: Mint automatically categorizes your transactions pretty accurately. In another 30 minutes, I was able to customize categories and reassign vendors to new categories. The ability to add tags and rules on any expense is fantastic, empowering Mint to better recognize and bucket expenses properly in the future.

3. Simple Budgeting & Spending Trends: Using Mint’s Trend Charts, I was amazed by how much money I spent “eating out” at restaurants! I was also able to see how my spending in certain categories compared to others in New York, where I work. Within 10 minutes, I setup monthly budgets on specific categories, like eating out, groceries and transportation. At any point throughout the month, when I login, my Mint Dashboard shows me if I’m on or ahead of pace on my budgets, which helps me make adjustments. Where do you think you may be spending beyond your means? Have you ever broken out the interest portion of your credit payments to see what they’re really charging? Mint can help you do that. Whether you are experiencing hard financial times or not, tracking budgets and viewing your spending trends will help you make good decisions.

4. Aggregating Accounts: I know that this may not be a time that you want to look at your investment accounts, but one thing is for sure – having all of your accounts aggregated in one interface has never been this easy. If you are using 401kid’s ESP Wizard to get advice on the best 529 Plans and Coverdell ESAs, now you can add those accounts to your Mint dashboard to track them.

So how does this apply to parenting and your children’s future? Well, Mint could be an extremely useful tool for educating teens on money management. I would even argue that kids should be exposed to real world numbers as early as 9 or 10 years old. You could add your children’s debit cards and college savings accounts to your Dashboard and tag expenses related to education or your kids. For example, tags like “video games”, “soccer team”, “books” and “school supplies” will give you a good indication of how much you are investing in these areas. Mint’s blog publishes an interesting article about family budgeting.

Further, by setting budgets with your kids, encouraging them to use pre-paid debit cards and saving receipts from cash spending, you will achieve invaluable benefits, including:

1. Facilitating the financial education of your kids, something that they won’t learn in school – not even in college! Why K-12 and college education do not teach more practical life skills like personal finance is a whole other matter, which we will address another time.
2. Monitoring their spending, which is much easier through Mint than online banking or reviewing paper bank statements.
3. Developing the qualities of self-sufficiency and responsibility, by having them track their own budgets, from whatever they ‘earn’ through work or allowance. They will learn the true value of the dollar when the see how easily it flows out – for example “wow, we spent $1,500 on video games and toys last year?” Also, to see how their own credit accounts charge interest can be a painful and useful lesson – the earlier learned, the better.
4. Sharpening their real world math skills. Now you have an answer to the age-old question of young students in Algebra classes – ‘how am I ever going to use this stuff in the real world?’

I can think of 100 good reasons why you should use Mint or one of the other noted web-based money management soultions, to not only organize the family finances but also to provide what is probably the third most important area of non-formal education that is essential for your children’s development – behind 1) character education and 2) health education.

So what are you waiting for? Get on Mint and report back. I’d like to hear from parents and teens who are using Mint particularly as a mechanism to educate kids on money management.

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Yesterday, I asked my husband when we were going to start saving for our kids’ college tuition. “Not right now, honey. Later.” We have two toddlers, so you could argue that we have time on our side. I’d like to make the case, to the contrary. Life’s big issues, relegated to the land of later, have a way of sneaking up on us.

Maybe you’ve been meaning to get up to speed on the 529 College Savings Plans, but you simply haven’t found the time to take the next step. I feel your pain. We’re busy with work, family, and of course, that quaint old fixer-upper that charmed us right out of our senses, not to mention our free time when we bought it. Long story short, I have my HVAC guys on speed-dial. Bottom line? There always seems to be some pressing issue that has to be handled–now.

So, what about the things you need to take care of for your future? Often, they just fall off the radar screen. You tell yourself they can wait, right? You’ll get to it later. Wrong. Most tasks that people put off simply never get done, which is a shame. Because once college time rolls around for your son or daughter, paying tuition will have become one of those urgent matters that demand your attention–now.

Planning for the future is preventative maintenance. Procrastination, more than any other factor, is the culprit that leaves many parents holding the bag when it’s time to put children through college. Don’t let it happen to you.

So, what are you waiting for? Get going today! Put saving for college on your to-do list, along with dinner, soccer practice, and feeding the fish. Only today, put it at the top of your agenda. Check out 401kid.com and educate yourself about the 529 College Savings Plans. It will help you prepare for your child’s educational future. Will you feel glad you did? You bet your bottom dollar!

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I have three wonderful grandchildren. While some might argue it’s too soon to think about college, with the oldest being 6-years old and the youngest 2, I’m of a generation that believes it’s never too early to plan for the future.

I worked hard all my life, saved money and planned for my retirement. Now, I’d like to see the fruits of my labor and wise investment choices pay off for my grand kids. I’ve spoken with friends and my financial planner (my estate is valued at 2.5 million), but still am not clear on the best way to proceed that factors in the yearly climb of tuition fees and living expenses.

The merits of 529 plans have arisen repeatedly in our conversations, but I’m not sure if it’s the best choice. I want to leave the legacy of a great education to the next generation, but what if some of them decide not to attend college. My wish is for all of them to go, but one never knows what the future holds. What would happen to a saving plan should one or all decide against college?

One of my golf buddies recommended I visit your site in an effort to clarify my savings options. What does 401Kid advise?

Sincerely,
Generous Grandfather

Thank you for writing. You ask some great questions. Here are some answers. For families of similar means, 401kid can remove contributions and any future earnings from your taxable estate and maintain control of the money if you are the 529 Plan account owner.

Additionally, there are several gift tax benefits of which you might take advantage. You can give monetary gifts to anyone without owing gift tax, as long as gifts do not exceed annual exclusion amounts. This is true of contributions to a 529 Plan. There is an additional benefit, specific to 529 Plans, that allows you to contribute a large amount of money free of gift tax in a single year.

Annually, you may contribute up to $12,000 per student (or annually up to $24,000 per student if you and your spouse contribute) without being subject to gift tax, or contribute up to $60,000 per student in a single year (or up to $120,000 per student in a single year if you and your spouse contribute) without owing any gift tax.

This is a unique feature of 529 Plans. You will need to file a gift tax return and treat the gift as if it were made in equal payments over 5 years. To avoid gift tax, you should make no additional gifts to the student during that 5-year period. If you spread out your contribution over 5 years for gift tax purposes, a portion of the gift would return to your estate in the event of your death during the five-year period.

A 529 Plan is a great way to invest for future college expenses, but it also offers benefits for estate planning. If your gross estate is valued at greater than the applicable exclusion amount of $2,000,000 for federal estate taxes for 2006, you may be looking for ways to reduce its value in order to minimize or avoid estate tax for the beneficiaries of your estate.

A 529 Plan allows you to remove contributions and future earnings from your taxable estate and maintain control of the money if you are the 529 Plan account owner. This combination of factors is unique to 529 Plans. With other types of accounts, if you maintain control of the assets, the money is considered part of your estate.

Grandparents need to keep the federal generation-skipping transfer tax (GST Tax) in mind when contributing to a grandchild’s 529 account. The GST Tax is a tax on transfers made during your life and at your death to someone who is more than one generation below you, such as a grandchild. The GST Tax is imposed in addition to (not instead of) federal gift and estate taxes. Like the applicable exclusion amount, though, there is a GST Tax exemption, which is $2 million in 2006. No GST Tax will be due until you’ve used up your GST Tax exemption, and no gift tax will be due until you’ve used up your applicable exclusion amount.

A 529 Plan may allow you to invest for future college expenses while you take advantage of estate planning and gift tax benefits. You should talk with your tax or legal adviser for information specific to your tax situation and investment planning. The availability of tax or other benefits may be conditioned on meeting certain requirements. Non-qualified withdrawals are subject to federal and state income taxes and a 10% penalty.

I hope this is helpful and thanks for taking the time to write.

Kind Regards,

Dr. Tara J. Palmatier, Psy.D.

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These are the the wise words of Jim Boyle, President of College Parents of America, that always seem to elicit a smile whenever he speaks to a group of parents of younger children. Here are some of Jim’s other comments:

“I guess the simplicity of the line, and the fact that college for their kids is more concept than reality, makes these parents of small kids focus on the “before” part and nod in knowing recognition that if they can save enough money over the next 10 or 12 or 18 years, then in their minds “college will be taken care of” and they can keep a lifestyle as good or better than the one they have right now.

But then, as you well know, reality hits. The assumption of a progressively increasing income may prove wrong, as an employer takes a tumble. The comfort of a backstop from your parents may disappear, as they hold too long to a home they can’t sell, or an unexpected long-term medical crisis ensues, and you end up footing the bill.

That’s where the “during and after” part of paying for college kicks in, and where I surmise that you are probably spending your life right now.

If you are the parent of a current college student, you are probably struggling to pay for college in real time – or “during” – these four, or five or six years when your son or daughter is earnestly taking a full load of undergraduate classes and trying to earn enough money themselves to make a real dent in the bills that seem to just keep on coming from his or her college or university.

And you are learning, of course, that reality hits yet again, and that neither nor child nor you can earn enough money to pay for college in real time, and that borrowing money for college expenses is really the only possible way that you together will be able to make the bills for tuition, room and board, books, fees, travel to and from school and all of the other expenses that hit because you have a child striving to attain a higher education.

So, you as a parent borrow money, and before long you will enter the “after” life and have to start to pay it back, sometimes beginning in 60 days, sometimes at the end of each school year or, in some cases, not until the end of his or undergraduate education. Or in the case of your son or daughter, he or she may borrow money and commit to paying that loan back beginning six months after graduation.

But you may done all this without much of a strategy (and believe me you are not alone), so some of your joy in experiencing your child’s college years is tempered by that nagging feeling that you are just not doing enough to learn options and make smart decisions about paying for college.”

401kid can help families create a tax advantaged Education Savings program so they front load the “before” part of paying for college. By doing so, the college experience becomes more enjoyable and stress-free for all!

see College Parents of America

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